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Bretton Woods System – a gold exchange standard

September 4, 2011 by

This was an attempt at another gold standard — a gold-exchange standard to be precise. The dollar was at the center and could be exchanged for gold. There were three major flaws that ultimately led to the failure of Bretton Woods:

First and foremost was the fact that dollar-based credit flooded into the global economy as the U.S. ran a persistent balance of payments deficit. This credit was issued in a big way to fund the Vietnam War and the Great Society social programs.

Second, countries consistently fiddled with the original dollar parities to gain an advantage on trade. In fact, the European country parities were set quite low in order to help them rebuild after WWII. The Marshall Plan also forced dollar credit into Europe so they could buy U.S. goods. However, these parities were never revised upward as was originally agreed upon.

And third, the pegged system required capital controls and could not be sustained as the free flow of capital across national borders increased during this period, which is China’s problem today. Pegged rates are artificial and cause speculation. And cross border flows become destabilizing in this environment, where as such flows were stabilizing under the classic gold standard.

This is why China’s pegged rate regime is untenable and leading to massive capital misallocation inside the country. It is a one-way bet by speculators who are driving hot money, which adds to China’s woes when it comes to controlling credit growth given its dangerous inflationary environment.

The above article is written in part by author, Jack Crooks who writes for Money and Markets.com.

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: U . S . Dollar Report and Opinions

Floating Rate US Dollar System

September 4, 2011 by

Our current Floating Rate US Dollar System or what some refer to as the “Fiat Money Standard” allows major currencies to float against one another. The market prices are based primarily on supply and demand. It’s a system that historically there is no parallel.

It really seems nonsensical that a global monetary regime can grow out of a fiat monetary system whereby there is no real backing of value for the currency other than promises by politicians. But following the breakdown of Bretton Woods that’s the system we are stuck with, which has surprisingly served us better than expected. And the U.S. dollar is at the center.

Approximately 64 percent of foreign exchange reserves are denominated in U.S. dollars. That’s up about 8 percentage points since 1995, but down about 20 points since 1973. And about 60 percent of world trade is invoiced in dollars.

Ultimately the dollar’s position rests on faith of those who hold it and accept it as the standard … there is no guarantee this faith will be maintained in the future. And rightfully many are concerned given turmoil of the credit crunch and related global imbalances, coupled with irresponsible fiscal spending and debt creation by the U.S. government.

When we add the weight of this to the Fed’s dollar devaluation policy in an effort to reflate the global economy, it’s understandable why many expect this to be the disruptive shock that alters the equilibrium and ushers in a new international money.

The above article is written in part by author, Jack Crooks who writes for Money and Markets.com.

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: U . S . Dollar Report and Opinions

The World Forex Economic Game and why the USA might be in a better position then most know!

September 4, 2011 by

I believe it was a United States General that once said “in China they play chess…in America we play poker”.

You ask, what does chess and poker have to do with the Forex Market or world economics or even world power? It has just about everything to do with it when the USA is involved.

You see when one plays poker it helps to have deep pockets and it also helps to know what your opponent’s next basic move will be (in chess there are so few forward moves). The USA has the deep pockets and the willingness to sacrifice a big chunk of their assets if need be or pass up taking profits just to throw the others players off balance.

Right now we are witnessing the largest economic poker/chess game in the history of mankind.

China has been running full out since 2008 (since the USA’s economic slowdown) self capitalizing it’s own economy to pick up the slack of falling exports to the USA and Europe. China, much like the USA did, is suffering a major real estate bubble (especially inland China). And much like the USA the Chinese Government has been pumping billions of dollars into it’s domestic economy. Unlike the USA the Chinese economy has yet to break.

The USA play is to collapse it’s economy first and start rebuilding (which it did) while the other economies (players) in the world begin to falter or have yet to falter. This way the USA will be in a strong position to pick up the world economic pieces at relatively bargain basement prices.

It is in my opinion that the main reason TARP funding was used back in 2009 was to save financially crippled American companies from being purchased at fire sale prices. The same goes for the US Government propping up the stock market. Many exchange listed American companies’ stock prices in March 2008 were ripe for foreign takeover. Not to mention the fact that government and pensions plans are some of the single largest holders of stock.

So when China implodes watch for falling commodity prices (not so much food) and many of the foreign companies that China paid top dollar for may be available at fire sale prices. All this will be happening as the US dollar gains ground. That’s right, the US dollar will be worth more. With China and Europe falling apart the good old Yankee dollar should once again prevail.

Video on China – Europe (added on 11-13-11)

China’s Bad Growth Bet (added on 11-14-11)

That trillion US dollars that China is sitting on, they will need it to help jump start their economy after it implodes to stop their people from overthrowing the current Chinese government.

The ten trillion dollars the US Government has in circulation (much of it put into circulation over the last three years) no worries. The US dollar continues to be the reserve currency and with many third world nations and developing nations on their way up the economic ladder the dollars will be needed. Availability of a reserve currency is almost as important as it’s strength.

I hope the above currency trading article was of help to you.

Below link ADDED on 3-24-2012
Why the U.S. dollar may be in a sweet spot … a place it hasn’t been for a long time.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: Question and Answer Forum Blog, U . S . Dollar Report and Opinions

Swiss Franc and Swiss National Bank

August 24, 2011 by

Traditionally during periods of market turmoil FX investors have turned to the Swiss franc and the Japanese yen. It is hard-wired in traders that the Swissie and the yen are the asset classes of choice when risk is sold due to their relative political stability and high proportion of debt held domestically.

However, not any more. After hitting record highs versus the euro and the dollar, the Swiss National Bank (the SNB) said enough-was-enough and started to directly intervene in the markets from August 3, 2011.

The SNB took the market by surprise and lowered interest rates to zero try and dissuade people from buying its currency. The logic was that if a currency doesn’t yield anything investors don’t earn a return and so won’t want to buy the currency. But old habits die hard. At the peak of last week’s turmoil when the markets were fearful for the European banking sector and as French bond spreads with Germany reached multi-year highs, the Swiss franc was a mere 70 pips away from parity against the euro.

After failing at its first attempt the SNB isn’t taking any chances and is currently boosting its weaponry to try and weaken the franc. It is reported to be looking at a potential peg to the euro, negative interest rates and even targeting a floor in EURCHF and USDCHF that would formalize direct intervention in the currency markets once the Swissie reached a certain level.

Rather than rush into the Swiss franc when the going gets tough, investors now need to take a step back and consider if they want to fight the SNB. After near capitulation there has been a massive rebound in EURCHF, which has surged by more than 10 big figures as the franc sagged. The SNB is serious and will do all it takes to dampen buying pressure on its currency.

The above article is written in part by author, Kathleen Brooks who writes for Forex.com and for Investopedia.

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

What is Martingale Forex Strategy or Double Down?

August 22, 2011 by

The martingale was originally a type of betting style that was based on the premise of “doubling down”. Interestingly enough, a lot of the work done on the martingale was by an American mathematician named Joseph Leo Doob, who sought to disprove the possibility of a 100% profitable betting strategy.

The mechanics of the system naturally involve an initial bet; however, each time the bet becomes a loser, the wager is doubled such that, given enough time, one winning trade will make up all of the previous losses. The introduction of the 0 and 00 on the roulette wheel was used to break the mechanics of the martingale by giving the game more than two possible outcomes other than the odd vs. even or red vs. black. This made the long-run profit expectancy of using the martingale in roulette negative and thus destroyed any incentive for using it.

To understand the basics behind the martingale strategy, let’s take a look at a simple example. Suppose that we had a coin and engaged in a betting game of either head or tails with a starting wager of $1. There is an equal probability that the coin will land on a head or tails and each flip is independent, meaning that the previous flip does not impact the outcome of the next flip. As long as you stick with the same directional view each time, you would eventually, given an infinite amount of money, see the coin land on heads and regain all of your losses plus $1. The strategy is based on the premise that only one trade is needed to turn your account around.

Why Martingale Works Better With FX

One of the reasons why the martingale strategy is so popular in the currency market is because unlike stocks, currencies rarely go to zero. Although companies easily can go bankrupt, countries cannot. There will be times when a currency is devalued, but even in cases where there is a sharp slide, the currency’s value never reaches zero. It’s not impossible, but what it would take for this to happen is too scary to even consider.

The FX market also offers one unique advantage that makes it more attractive for traders who have the capital to follow the martingale strategy. The ability to earn interest allows traders to offset a portion of their losses with interest income. This means that an astute martingale trader may want to only trade the strategy on currency pairs in the direction of positive carry. This means that he or she would buy a currency with a high interest rate and earn that interest while, at the same time, selling a currency with a low interest rate.With a large amount of lots, interest income can be very substantial and could work to reduce your average entry price.

Minding the Risk

As attractive as the martingale strategy may sound to some traders, we stress that grave caution is needed for those who attempt to practice this style of trading. The main problem with this strategy is that oftentimes, that sure-fire trade may blow up your account before you can turn a profit – or even recoup your losses. In the end, traders must question whether they are willing to lose most of their account equity on a single trade. Given that they must do this to average much smaller profits, many feel that the martingale trading strategy is entirely too risky for their

The above article is written in part by one of my favorite authors, Kathy Lien who writes for Investopedia.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: Forex Pro Currency Trading Help Blog

Who Gets Gaddafi’s Gold?

August 22, 2011 by

Here we are possibly just a short time away from Libya’s “people” ousting Gaddafi and installing a new government in war torn Libya.

What happens to a nation’s assets when a takeover happens in a third world country. Well, my research indicates pretty much everything is up for grabs. Therefore; whoever can grab and hold or sell and hide the assets wins the asset grab race.

Let’s look at Libya. Strong rumors in past years were afloat that Ghaddafi had been buying as much gold as possible and as of late has a sizable sum of gold in storage. Some think that Ghaddafi was planning on starting a Muslim currency which he hoped some day would be used to trade (buy) oil.

Now we look at the price of gold. Gold is at an all time high $1,875.

Now we look at who would and could get to Ghaddafi’s gold. The same organization(s) that could help drive gold to new all time highs.

After the Gold is seized in Libya and put up for sale and sold be very careful to watch out for a price drop in the price of gold. Spot traders trading to the upside use stops.

Then again maybe all this is a coincidence.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: Trade Gold and Silver Blog

Information on Silver

August 20, 2011 by

The new way to trade silver is on the Forex Market. Here you can use leverage and trade silver against many different currencies. The Forex Market offers fast in and out liquidity advantages and options.

The Traditional Methods of owning silver

Precious metals have been popular investment options for hundreds of years. The word “bullion” refers to the precious metals’ physical state and has value based on that metal’s purity and quantity. Most of today’s silver is mined mainly as the result of mining for copper and zinc as silver is commonly bonded with those metals in small quantities. Silver bullion is 99.9% pure although there may be variations.

Silver bullion comes in bars that are stamped with the name of the company that minted the bars along with the bars’ purity and weight. The bars come in sizes of 5, 25, 50 and 100 ounce bars. Silver rounds and silver bars can be purchased in 1 ounce sizes also. Although it is very seldom that investors buy silver bars heavier that the 100 ounce version, there are bars that weigh up to 1,000 ounces.

Silver coins are also available. These coins are different from silver rounds as they are produced by official mints that are federally authorized whether they are for purposes of bullion or money. Canada, the USA and some other countries produce silver coins. Buying silver coins has the advantage that the coins have historical value which makes the price higher. Silver ornaments and jewelry tend to fall into this category even though they may be rarer and have historic worth is so much higher that the coins.

There are also silver scrap and silver nuggets though these are quite rare. Most companies that manage to produce the silver scrap, gather the scrap, purify and mold the scrap into bars and sell them. Silver scrap tends to be not as pure as the silver coins or bars.

Although silver commands a price less than gold, it is a popular option for investment because they have intrinsic value. Like gold, silver’s value is determined largely by market conditions. Most of the potential of silver lies in buying the metal when the price is low and selling when the price is high just as they would stocks. Though unlike trading stocks, silver’s price rises when markets are in trouble as people tend to invest more in silver as a safer investments.

There are many places where silver is readily available. Silver is even available online. However, one needs to be very careful when buying of silver online. Quality of the silver can be difficult to guarantee in transactions online. Purity is the factor that is most important when it comes to silver bullion. It would be preferable to buy from companies or dealers that have acquired trustworthy reputations or those that have been highly recommended.

Investing in silver also has some disadvantages. Similar to investing in gold, silver does not yield any interest. The price of the silver bullion also comes with a premium so one pays higher that the bullion’s actual worth. There is also the matter of storage space as bullion tends to be bulky and rather heavy and must be kept secure. There may even be a need for an assay if the silver is to be sold.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: Trade Gold and Silver Blog

Information on Gold

August 20, 2011 by

The new way to trade gold is on the Forex Market. Here you can use leverage and trade gold against many different currencies. The Forex Market offers fast in and out liquidity advantages and options.

The Traditional Methods of owning gold

Countless financial experts have always claimed that there are many benefits to be had if one invests in gold. Most feel that gold is the very best investment choice. This is especially so when we are faced with a volatile stock market and uncertain economic times.

Here are some of the fundamental reasons why it is good to invest in the “yellow metal”

1.Gold is not just a commodity, but is also a currency that has evolved over the last five thousand years in the marketplace.
2.Gold, along with silver, are the two tangible currencies that are not controlled by governments. Monetary currencies like the Japanese Yen or the US Dollar are “fiat,” this means that they are merely worth a value that was given by a government decree. They are legal tender but do not represent anything tangible.
3.Fiat currencies lose their worth or value once they are created in great amounts. This causes what is known as hyperinflation.
Gold as a Hedge Against Currencies and Inflation

Gold plays an important role as a hedge against inflation as gold appreciates. As most investors realize that their portfolios are losing value, they will naturally gravitate towards positioning their investments in hard assets that maintain their value.

Gold benefits when the US Dollar declines as gold’s price is in US Dollars in the global market. Central banks who would want to invest in gold will have to sell their US Dollars to buy gold in the world market. This practice naturally drives the dollar lower as more and more investors are letting go of their dollars in order to diversify. The declining dollar makes the yellow metal more affordable for investors holding other currencies as this naturally results in more demand from those investors who are holding stronger currencies.

Gold Used as a Safe Haven

Most investors will look for safe havens during times of economic and political uncertainty, and they naturally turn to gold. This is because history is replete with collapsed currencies, collapsed empires and even political coups. During such times, people who had held on to gold were able to survive those times. Many have even used their gold in order to escape from such problems and save themselves and their families. Even today, once there is news of uncertainty in any part of the world, most investors turn to gold as their safe haven.

Diversifying Investment with Gold

It does not matter if one is worried about declining US Dollars, inflation or protecting one’s wealth, gold has historically been an investment that adds a crucial diversifying component to any portfolio.

There are many people who consider gold as an investment that is risk-free because gold is capable of maintaining its value. Gold offers a basis for financial savings in cases of sudden increases in inflation.

However, it is also worth noting that gold, like any other investment, has disadvantages. Gold does well whenever there are economic problems but does not too good when financial times are well. Another disadvantage is that gold does not pay any dividend like shares or stock investments.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: Trade Gold and Silver Blog

Economic Reports That Affect The U.S. Dollar

August 17, 2011 by

Trade Balance
Non-farm Payroll
Gross Domestic Product
Retail Sales
Industrial Production
CPI (Consumer Price Index)

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: U . S . Dollar Report and Opinions

US Dollar Index Chart – the fork in the road?

August 16, 2011 by

The 2008 -11 US Dollar (using the five year chart) uptrend support line was clearly broken to the downside back in March 2011. Currently the US Dollar continues in a narrow sideways closing triangle pattern which is nearing the end of it’s life cycle. We are approaching a point of possible decision to the upside or downside.
Momentum and technicals indicate downward pressure. Liquidity and relativity to other major currencies indicate upward trend of equal pressure.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Filed Under: U . S . Dollar Report and Opinions
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